Crony Capitalist Windfalls And The Saga Of Saint Warren Buffett

Howard Buffett must be turning in his grave, and probably has been for some time. Well, at least since his famous son unleashed the following pean of unctuous mendacity in praise of Washington's utterly perfidious bailouts of Wall Street in 2008-2009.

Of course, the senior Buffett was among the most free market, hard-money, peace-loving constitutionalists to serve in the US House of Representatives during the last century, perhaps ever.  The very idea that the Fed-fueled, crony capitalist bubble which peaked in September 2008 merited an open-ended rescue of Wall Street speculators would have been not simply anathema, but damn near evil incarnate to Howard. The latter well knew that speculators are not entitled to indulgences of the state and that the solution to central bank fostered financial bubbles is the tender mercies of the free market and the Chapter 11 courts.

Then again, Howard's sainted son Warren had no such compunction. After piling into a $5 billion investment in late September 2008 in the teetering gambling house known as Goldman Sachs, or what Matt Taibbi better described as the Vampire Squid at the time, Warren had the audacity to call up former Goldman CEO, and then Secretary of the Treasury, Hank Paulson, in the wee hours of the night and suggest that he hand out $5 billion to $25 billion each to  Goldman Sachs and a half-dozen other mega-banks, along with more than $200 billion of taxpayer gifts to scores of smaller banks.

Paulson did exactly that shortly thereafter, and, mirabile dictu, Warren Buffett's reckless bet on a house of cards heading for the fate of Bear Stearns, Lehman Bothers and Merrill Lynch was instantly made whole. To wit, Buffett had ostentatiously made his reckless $5 billion bet on Goldman Sachs on September 23rd, when it share price stood at $122, but by October 10th the company was heading for the round file, trading nearly 30% lower at just $88 per share.

Alas, Paulson got his late night not SOS from Saint Warren, and the rest was history. Buffett ultimately made more than $3 billion, thanks to Uncle Sam's rescue brigade.

GS Chart

So Warren Buffett's subsequent unctuous letter to Uncle Sam posted as an op ed in the New York Times was obvious enough. Of course, it was a complete pack of lies. The US economy would have done just fine if Goldman and Morgan Stanley had been carved up into solvent pieces and parts in Chapter 11, and there was never any danger of an old-fashioned bank run by the main street hoi polloi who did know they had deposit insurance.

And his even more tendentious claim that absent the Wall Street bailouts corporate America would have missed payr0lls within weeks due to the collapse of the commercial paper market was utterly risible nonsense. Just plain beyond the pale. Every one of these Fortune 500 commercial paper facilities had legally-binding back-up lines at the banks, and, in turn, any commercial bank that needed to fund a call on these corporate credit lines had open-ended access to the Fed's discount window.
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